Applying a destination-based cash flow tax—better known as a “border-adjustment tax,” or BAT—to the import of reinsurance would have significant effects on the cost and availability of a range of insurance products. This report projects that, for Texas consumers, the impact would be $3.39 billion in higher property-casualty insurance premiums over the next decade.
This projection is derived by examining the impact a BAT system would have on the supply of international reinsurance and calculating the effects that changes in price and availability would have on the state’s insurance market and policyholders. Because property and casualty insurers that do business in Texas—as in other states exposed to major natural disasters—cede a large volume of risks to foreign reinsurers, the state would experience dramatically higher insurance premiums under a BAT system.
With Congress and the White House reportedly preparing to consider a BAT as part of an overall tax-reform package, it is important to underscore the deleterious effects the tax could have on citizens’ ability to secure insurance coverage for their homes, cars and businesses. If Congress does pursue a border-adjustment tax, it should note that developed nations that employ the conceptually similar value-added tax (VAT) system almost universally exempt financial services like reinsurance from the tax.
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